Longtime $317M Defaulted Multifamily Portfolio Gets a Workout

Real estate investment and development firm The Chetrit Group purchased a portfolio of 5,400 multifamily units across 56 properties that backs a $317 million loan recently restructured by New York-based investment and advisory firm Iron Hound Management Company, Commercial Observer has learned.

The Empirian Portfolio Pool 2, which carried an original balance of $335 million, received a 12-month maturity extension with an A/B note modification, splitting it into a $205 million A-note and a $112 million B-note, said Iron Hound Principal Robert Verrone, who worked on the loan.

The loan had been five-years delinquent.

“This gives the new borrower time to stabilize the portfolio before he has to get new financing and the lender will participate through the B-note,” Mr. Verrone told CO.

Iron Hound also arranged the loan assumption from the original borrower, Ezra Beyman, president and chief executive officer of New Jersey-based Empire American Holdings. The restructuring also wiped out the loan’s preferred equity piece, owned by Arbor Commercial Mortgage.

Such A/B note modifications, or “hope notes”, are typically used when a defaulted loan holds a balance greater than the current value of the underlying property, thus allowing the borrower to take on a smaller A-note that the property income can support. The B-note is typically refinanced or sold once the loan matures.

The Chetrit Group also brought in roughly $20 million new cash to pay off the loan, another source familiar with the deal said on the condition of anonymity.

The loan was originated by Merrill Lynch in the $2.77 billion MLCFC 2007-8 conduit and was transferred to special servicer LNRPartners in December of 2010 for imminent default.

The portfolio was originally comprised of 6,892 multifamily units across 73 properties in eight states and now holds roughly 5,400 units across Florida, Indiana, Kentucky, Ohio and Pennsylvania. Cardinal Capital Management developed the rental units, which were created for middle-income households.

The Empirian Portfolio Pool 2 was originally part of a larger portfolio of nearly 21,000 multifamily units. The pool was split into thirds, including the $269 million Empirian Multifamily Pool 1, which holds a current balance of $179 million, and the $231 million Empirian Multifamily Pool 3, which holds a current balance of $149 million. Pools 1 and 3 were securitized in a different commercial mortgage-backed securities transaction—the $4.05 billion MLMT 2007-C1, also originated by Merrill Lynch.

Similarly, the two pools, which were transferred to special servicer C-III Asset Management in November 2010, were eventually resolved through the creation of hope notes in December of 2011, according to special servicer commentary.

Representatives for Mr. Chetrit and LNR did not respond to inquiries by press time.